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PHIL WATTS

Head of Product


At Xelix, our aim to transition early settlement from “immediate benefit, hard to do” to “immediate benefit, easy to do”

UK Retail: Plugging the Margin Gap

2017 is set to be a challenging year for the UK retail sector. High profile closures in 2016 - such as Austin Reed, American Apparel and of course BHS - have pushed the sector’s ills to the forefront of national news. Indeed, it is hard to pick up a newspaper without reading about a retailer closing down stores or revising earnings expectations. It’s certainly not all doom and gloom, but even the most robust retailers are seeing significant pressures to their business model.

The specific challenges in the sector are well documented. The uncertainty following Brexit has significantly weakened the pound, giving finance teams the headache of whether to pass on or absorb the 15-20% rise in cost of sales. This currency depreciation has already started to drive inflation, making it even harder to wean consumers off the “discount drug” and reestablish a habit of buying goods at full value. Add to this mix the long-term rise of e-commerce and shifting consumer-shopping trends, alongside the costs associated with the ‘Living Wage’, it’s not hard to see why retail margins are under significant pressure.

Of course, retail teams up and down the country have been thinking about these challenges for years and are putting into place strategies and tactics to mitigate this margin erosion and continue to drive sustainable growth.

Some of these tactics are easy to implement, whilst others are far more difficult. Some of these tactics will have an immediate short-term impact, whilst others might take many years to bear fruit.
For example, implementing currency hedging is relatively easy to do and the benefits are felt in the near term. Conversely, renegotiating key supplier pricing agreements is far more difficult, with the benefits only felt in the medium term.

Our belief at Xelix is that early settlement discount - offering to pay suppliers earlier in return for invoice discounts - falls in the category of “immediate benefit, hard to do”.

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Why is this so?

Early settlement is one of the most effective ways for a retailer to see an immediate and material reduction to their cost of sales. These savings increase gross margins and represent a fantastic optimisation of working capital (read more here). What’s more, with many suppliers unable to access affordable credit, the option of early payment is most welcome, and in turn, reduces the counter-party risk within the retailer’s supply chain.

Managing the process of early settlement, however, is far from easy. When offered by the retailer it usually involves calling or emailing a handful of the largest suppliers at certain points of the year to negotiate a deal. Once confirmed, someone from the finance team is then tasked with manually updating the accounting system to reflect new payment terms. For a retailer with hundreds of suppliers, this process is inefficient and simply unscalable.

At Xelix, our aim to transition early settlement from “immediate benefit, hard to do” to “immediate benefit, easy to do”. Our software has been designed to manage this process of early settlement across the whole supply chain effortlessly, with the absolute minimum amount of resource required to manage. Crucially, our system can be deployed within days and requires no supplier onboarding.

At Xelix, we are working with a range of retailers - helping them to drive savings and increase margins to offset the macro pressures described above. If you are a retailer, we would love to discuss how our simple and intuitive software could support your financial strategy.

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